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Horizontal Mergers, Involuntary Unemployment, and Welfare

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  • Oliver Budzinski

    (University of Southern Denmark)

  • Jürgen-Peter Kretschmer

    (Philipps-University of Marburg)

Abstract

Standard welfare analysis of horizontal mergers usually refers to two effects: the anticompetitive market power effect reduces welfare by enabling firms to charge prices above marginal costs, whereas the procompetitive efficiency effect increases welfare by reducing the costs of production (synergies). However, demand-side effects of synergies are usually neglected. We introduce them into a standard oligopoly model of horizontal merger by assuming an (empirically supported) decrease in labour demand due to merger-specific synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers are substantially decreased, if involuntary unemployment exists. However, in full employment economies, demand-side effects remain negligible. Eventually, policy conclusions for merger control are discussed.

Suggested Citation

  • Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," MAGKS Papers on Economics 200907, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:200907
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    Cited by:

    1. Budzinski, Oliver & Kretschmer, Jürgen-Peter, 2015. "Unprofitable horizontal mergers, external effects, and welfare," Ilmenau Economics Discussion Papers 96, Ilmenau University of Technology, Institute of Economics.

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    More about this item

    Keywords

    horizontal mergers; involuntary unemployment; efficiency defense; oligopoly; competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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